Tata forays into strategic sectors of Southeast Asia
Institute of Peace and Conflict Studies (New Delhi) | 14 April 2007
Tata Forays into Strategic Sectors of Southeast Asia
Dr. Pankaj Kumar Jha
Security Analyst
e-mail: pankajha_kum@yahoo.com
The Tata group has set its sights on acquiring about 30 percent stake in two prominent thermal coal producers in Indonesia for US$1.1 billion. The two Indonesian coal companies are ranked among the three largest exporting coal mines in the world. This foray by Tata was preceded by acquisition of Nat Steel of Singapore which has subsidiaries in China, Singapore, Malaysia, Thailand, Australia, Vietnam and the Philippines. Tata has also acquired 40 percent stake in Millennium Steel in Thailand and the company has been renamed Tata Steel. Its strategic acquisitions in Southeast Asia also included the acquisition of SSE steel in Vietnam. Tata has intentions of expanding its operations in the area of pick-up trucks in Thailand and acquiring a steel rolling mill in Laos in the near future. Apart from these deals, Tata Consultancy has a significant presence in Malaysia and in Vietnam. The question arises whether Tata has set its sights on Southeast Asia as a strategic business opportunity. What are the different aspects of acquisitions in Southeast Asia? The answer is that Indian companies see a growth potential in the Southeast Asian economies, and also an extended market in the region. It is true that a company like Tata has set sights on expanding its operations in the near east and this includes acquisitions in China and Korea.
Business has thrived in these regions, and industry majors like the Aditya Birla Group or Bajaj, find the region conducive for their business interests. Off-shore production is also a requirement for the future growth of Indian companies. In the recent past, Indian iron-ore exports to China have come under the scanner due to increase in export tariffs, so it would be more profitable for Indian companies to set up their subsidiaries in the region where the potential of growth exists. It is true that strategic industries like steel, coal and oil would matter in the coming decades and therefore, Indian companies are aggressively acquiring weak and even capable companies.
In this milieu Southeast Asia becomes very important for Indian decision makers. China is making deep inroads in the region because of its trade initiatives, but Indian companies would be calling the shots in future, and the Asia-Pacific region might become a market for them. The Tata initiatives have a domestic component in that they would meet the energy needs of India through resources sourced from the Southeast Asian countries, particularly Indonesia. In fact the acquisition of Indonesian coal would fuel Tata’s power projects in the western coast of India. These moves signify pre-emptive moves made by Indian companies prior to signing of the ASEAN-India FTA. This gains importance with the growing cooperation between the two regions in the areas of Terrorism, Defence and political cooperation. India has toned down its negative list from around 1400 to 490 items, which highlights the significance of the region for Indian policy makers. China has nudged ahead of India with regard to a Free Trade Area (FTA) by signing the China-ASEAN FTA in 2004 and has already initiated time-bound reduction of tariffs for complete activation of China-ASEAN FTA by 2010. One of the strategic moves in this regard has been construction of highways connecting southern China to Indo-China and giving economic aid to the poor countries of Southeast Asia.
Meanwhile, Indian companies like Kirloskar, Birlas, Bajaj and Godrej are exploring other areas to consolidate their position in Southeast Asia. Singapore has shown willingness to grant business rights to two Indian banks by 1 July 2007 as part of the Comprehensive Economic Cooperation Agreement (CECA), which is indicative of the possibilities for India in the financial sector of Southeast Asia. In the service sector, Tata has a considerable presence in countries like Malaysia and Singapore through the Tata Consultancy Services, and also in Vietnam, which has seen an influx of Indian entrepreneurs in the recent past. The potential for convergence is high but Indian decision-makers also need to note these developments in the corporate sector. The issue of India-ASEAN FTA might be resolved in the near future, but India will have to bargain hard to gain bigger economic benefits in the services sector.
